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Covid-19 Diligence Briefing

Our briefing for Tuesday April 13, 2021:

  • The United States’ Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA) out of what they are calling an “abundance of caution”, have recommended pausing the Johnson & Johnson COVID-19 vaccine. The United States recorded six reported cases of a “rare and severe” type of blood clot out of 6.8 million doses of the vaccine administered in the country. All six of the cases occurred among women between the ages of 18 and 48 and symptoms occurred 6 to 13 days after vaccination, according to a joint statement from the CDC and FDA. The White House was made aware of the decisions from the CDC and FDA to pause the use on Monday evening, but the Biden administration played no part in the decision, according to COVID-19 response coordinator Jeff Zients. 
  • In Canada, the federal health regulator said it was working with Johnson & Johnson, along with the United States’ CDC, FDA and other international regulators to provide more information on any cases of the rare blood clotting events caused by the COVID-19 vaccine. Canada had approved the one-shot Johnson & Johnson vaccine, but deliveries were not due to start until the end of April. Elsewhere in the country, Prime Minister Justin Trudeau admitted during a news briefing on Tuesday that Canada’s recent fight with spread of COVID-19 variants is threatening the progress made by vaccinations. The country is now in a race with the variants overtaking the pace of vaccination with Canada expected to import enough doses to ensure every citizen can receive a shot by the end of June. 
  • While some United Kingdom residents enjoyed some of the freedoms of “Manic Monday”, Prime Minister Boris Johnson tried to issue a dose of reality on Tuesday. Prime Minister Johnson warned that rapid drops in COVID-19 deaths was largely due to the three-month lockdown that was put in place by the government and not the vaccination programme. Also, as the country begins to open up again, expect the COVID-19 case count to rise once again. Despite the warning, the prime minister noted there was no reason to change the roadmap for reopening the economy. The United Kingdom trail only Israel in the proportion of the population to have received at least one dose of a COVID-19 vaccine. 
  • In Germany, cabinet members have approved legal changes to grant the federal government more power to enforce coronavirus regulations in all German states. The changes made to the German Infection Protection Act now must be passed in parliament, the Bundestag. If given the green light, the new rules would allow Chancellor Angela Merkel’s government to install a “federal emergency brake” to any region in any state with a high incidence of COVID-19 cases and legally required to implement a uniform set of rules outlined by the federal government.
  • India, recognized as one of largest drug manufacturers in the world, is turning to imports to help out with their COVID-19 vaccination programme. On Tuesday, India’s government said it would fast-track emergency approvals for COVID-19 vaccines authorized by Western countries and Japan, which would mean extra doses of the Pfizer, Moderna and Johnson & Johnson shots. According to data, since April 2nd, India has reported the high daily tallies of COVID-19 infections with over 161,000 cases reported on Tuesday.
  • Bloomberg is reporting Hong Kong is planning to only allow vaccinated travelers to fly from the city to Singapore once both governments finalize a travel bubble. The plan to open the borders both ways has been in the works since November 2020 but has been constantly met with delays due to ongoing spikes in coronavirus cases. Both Hong Kong and Singapore are key financial hubs in the Asian corridor and are eager to open their borders and economies. Hong Kong’s latest coronavirus outbreak has been contained in recent weeks with numbers either sitting in the low double-digits or fewer.

Covid-19 – Due Diligence And Asset Management

KKR Seeks to Raise $100 Billion by 2022 After Record Year

Brief : KKR & Co. expects to raise more than $100 billion by 2022, building on last year’s record and an abundance of growth opportunities. “We have many more strategies coming to market now than we did at the beginning of 2020,” Scott Nuttall, KKR’s co-president, said Tuesday at the New York-based firm’s virtual investor day. “Our fundraising pipeline is very large.” KKR took in a record $44 billion last year as investors sought higher-yielding assets. The firm, which oversees $252 billion, has been among the most active dealmakers during the Covid-19 pandemic, investing through the downturn to avoid mistakes it made in the aftermath of the 2008 financial crisis. The firm expects to reach its goal by raising $40 billion to $50 billion in private equity, $15 billion to $20 billion in infrastructure, $10 billion to $15 billion in real estate and $20 billion to $25 billion in credit. KKR is either already in the market with or planning to raise capital for more than 20 strategies this year and next, including its flagship Americas and Europe private equity funds as well as its global impact and opportunistic real estate funds, according to the presentation.

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Banks to See Big Profits as COVID “Bad” Loans Become “Good”

Brief: The nation’s largest banks are expected to report big profits for the first quarter amid renewed confidence that pandemic-battered consumers and businesses can repay their debts and start borrowing again. The brighter outlook allows banks to move billions of dollars worth of “bad” loans back to the “good” pile, in what are known as loan loss releases. The pandemic forced banks such as JPMorgan Chase and Bank of America to put aside billions of dollars to cover potentially bad loans. The sum of money put into these pools is nothing small. Across the entire banking industry — large and small banks alike — a collective $120 billion is set aside to cover these loans, according to data from the Federal Deposit Insurance Corporation. And a significant chunk of it — around $40 billion — was set aside by the nation’s largest financial institutions. These funds, once released, are added to a bank’s bottom line when they report their quarterly profits. Most banks are expected to report significantly improved results compared to the first quarter of 2020.

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EU Governments to Seek Deal on Controversial Covid Passports

Brief: European Union governments will seek to hammer out an agreement Wednesday on technical specifications for so-called coronavirus passports aimed at salvaging the region’s summer tourist season. The “Digital Green Certificates” will offer proof that holders have had a Covid-19 jab or recently returned a negative test, while people who contract the disease should be recognized as immune from day 11 for about six months, according to a draft of the rules due to be discussed at a meeting in Brussels. EU states have been at loggerheads over the passes and the privileges they should convey, and envoys must reach a common position before negotiations with EU lawmakers can begin. The talks come after Johnson & Johnson delayed the European rollout of its vaccine Tuesday pending a review of rare blood clots, dealing a blow to hopes that widespread travel could resume by June. “While the pace of European vaccination has doubled so far in April, compared with that in March, it will have to triple to save part of the summer tourist season and meet the official targets.” Bank of America Corp. strategist Athanasios Vamvakidis said in a note to clients on Tuesday.

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Fed is Taking on a Racist Legacy in the Field of Economics

Brief: As the pandemic slammed the Black community and amplified the conversation around racism in America, the economics profession grappled with an uncomfortable truth: that its historical roots and practices today are mired in systemic racial bias. Last summer, the shock of George Floyd’s death and other instances of police brutality ignited a national debate about inequality. Topics like the racial wealth gap became part of everyday discourse. But at the heart of the problem is not just the prosperity separating White Americans from minorities -- often the Black Americans whose ancestors helped build the economy through enslaved labor -- but also that the very discipline that is a key conduit for improvement remains rife with racial bias. “My view of how economics has to inherently address structural racism starts with economics recognizing the role of institutions and power and politics in shaping economic outcomes,” said Joelle Gamble, special assistant to President Joe Biden for economic policy. “We are trying to practice this differently and say ‘how are we actually driving towards economic growth in a way that is helping more and more people who have been permanently left out?’”

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Raytheon, Final Sponsor to Sue AllianzGI for an Improved Return Technique

Brief: Raytheon Applied sciences Corp. took authorized motion towards Allianz International Traders, alleging mismanagement of an enhanced return technique, the corporate managed for one of many Waltham, Massachusetts-based firm pension funds. The lawsuit, filed April 9 by the corporate’s Pension Administration and Funding Committee within the U.S. District Court docket in New York, alleges that Allianz International Traders breached its fiduciary duties in managing its Construction Alpha methods, leading to losses in February and March 2020 totaling $ 280 million. for the Raytheon Grasp Pension Belief, in keeping with the court docket report. The losses had been incurred previous to the shut of the merger of Raytheon Co. and United Applied sciences Corp. in April 2020.  The pension belief was invested within the Supervisor’s Structured Alpha US Fairness 500 technique. Numeric values ​​in technique names correspond to the quantity of alpha in foundation factors above a corresponding index that the technique is predicted to realize.

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Liquidity Will Delay Default Spike for 2-3 Years, Ares CEO says

Brief: Liquidity pumped into the credit markets during the pandemic could stave off a spike in defaults for several years, Ares Management Corp. Chief Executive Officer Michael Arougheti said. “There’s underlying stress that will find its way into the markets but I don’t think that’s anytime soon,” Arougheti said at a virtual Bloomberg News event this week. Default rates are “artificially low” and asset prices are buoyant because “there’s so much liquidity masking that default rate that we’ve all grown accustomed to seeing at this point in the cycle that we’re probably two to three years out before we start seeing a traditional default cycle play out.” Progress against Covid-19 and a strengthening economy are providing support for small businesses, helped by the Federal Reserve’s easy monetary policy and the Biden administration’s focus on growth, according to Arougheti, whose alternative-investment firm oversees about $197 billion in assets. While the forecast is improving, large swaths of the economy including retail, hospitality and travel have a long road to recovery. “The outlook for small business is probably better than I would have predicted as recently as six months ago, but we’re not quite out of the woods yet,” he said.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday April 12, 2021:

  • In the United States, at the current pace, the country will likely hit a milestone this week with half of American adults receiving at least one dose of a COVID-19 vaccine. According to data, from the Centers for Disease Control and Prevention (CDC), 46% of adults in America have received at least one dose of vaccine and about 28% are fully vaccinated. Elsewhere in the country, the government posted a March deficit of $660 billion, a record high for the month as direct payments to Americans from the Biden administration’s coronavirus stimulus package started to be delivered. The deficit for the six months of the 2021 fiscal year ballooned to a record $1.706 trillion, according to a Reuters report.

  • In Canada, Quebec’s decision to move a Montreal curfew to 8 PM from 10 PM was met with riots in the streets over the weekend. On Monday, Montreal police announced they were investigating multiple reports of mischief, arson, obstructing a police officer and breaking and entering. Officers also handed out 107 tickets to people who violated public health measures. Montreal Mayor Valerie Plante responded via social media condemning the riot, calling it “absolutely unacceptable” and “fatigue linked to your fight against #COVID19 does not in any way justify the destruction of public property and failure to respect the rules. We must remain united and stick together.”

  • In what the media dubbed “Manic Monday”, England returned to restaurants and pubs in record numbers after more than five months of near continuous closure. Bookings were said to be “off the scale” for outdoor patios and rooftop terraces even though the temperature was hovering around 9 degrees Celsius (48 Fahrenheit). United Kingdom Prime Minister Boris Johnson has urged people in England to “behave responsibly” as non-essential shops, gyms and hairdressers also reopen. Scotland, Wales and Northern Ireland are following their own plans to ease lockdown restrictions.

  • Philippines President Rodrigo Duterte has relaxed coronavirus lockdown restrictions in Metro Manila, along with four neighbouring provinces, as hospitals added capacity for patients infected by COVID-19. The nation’s capital along with the four other regions will be placed under a so-called modified enhanced community quarantine until the end of April. Under the loosened restrictions, most people are still required to stay home but more businesses will be allowed to operate while limits on those that have remained open will be eased.

  • Bloomberg is reporting China is making a rare admission when it comes to their fight against the coronavirus. Speaking over the weekend at a forum, George Fu Gao, head of the Chinese Center for Disease Control and Prevention, said something needed to be done to address the low protection rate provided by Chinese vaccines. Research released Sunday showed efficacy rates for the Sinovac Biotech vaccine – deployed also in Brazil and Indonesia – was just above 50%. The number barely meets the minimum protection required for COVID-19 vaccines by leading global drug regulators. Gao suggested that following up inoculations with additional booster shots and mixing different types of vaccines could help address the effectiveness issue.

  • Australia has abandoned its goal to vaccinate nearly all of its 26 million population by the end of 2021, due to the concerning news around the AstraZeneca vaccine. Australia had put most of their eggs in the AstraZeneca basket, but with a possible link to the product and rare cases of blood clots, the country is moving towards advising those under the age of 50 to take Pfizer’s COVID-19 vaccine instead. In a Facebook post on Sunday, Prime Minister Scott Morrison wouldn’t commit to setting any new targets for the country’s vaccination program. Australia had originally planned to have its entire adult population vaccinated by the end of October.

Covid-19 – Due Diligence And Asset Management

Fed’s Bullard says 75% Vaccinations Would Allow for Taper Debate

Brief : Federal Reserve Bank of St. Louis President James Bullard said that getting three-quarters of Americans vaccinated would be a signal that the Covid-19 crisis was ending, a necessary condition for the central bank to consider tapering its bond-buying program. “It’s too early to talk about changing monetary policy,” Bullard said in an interview with Bloomberg Television’s Kathleen Hays Monday. “We want to stay with our very easy monetary policy while we are still in the pandemic tunnel. If we get to the end of the tunnel, it will be time to start assessing where we want to go next.” About 36% of Americans had been given a first vaccine dose and 22% were fully vaccinated, according to the Bloomberg Vaccine Tracker. Centers for Disease Control and Prevention officials have urged Americans to continue to take safeguards, including restricting their travel, with the number of cases rising. “When you start to get to 75% vaccinated, 80% vaccinated and CDC starts to give more hopeful messages that we are bringing this under better control and starts relaxing some of their guidelines, then I think the whole economy will gain confidence from that,” Bullard said.

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Goldman Risk Group Examines 2021 Market Events for Lessons

Brief: Goldman Sachs Group Inc executives are examining how well the bank navigated several major market events this year that caused extreme volatility, people familiar with the matter told Reuters. The review will include a market-wide fire sale of stocks triggered by Archegos Capital Management’s default on margin calls at banks including Goldman, the sources said. The meltdown of Archegos, a New York investment fund run by former Tiger Asia manager Bill Hwang, has sent shock waves across Wall Street and drawn regulatory scrutiny in three continents. Goldman Sachs is also looking more broadly at how it handled recent market events, with a particular lens on compliance and best practices, the sources said. That could include what happened during the Reddit-fueled trading frenzy in equity markets, including shares of GameStop Corp, as well as the U.S. Federal Reserve’s decision to end pandemic-related capital relief for banks, which caused issues in fixed-income markets. Also this year, there was chaos in energy markets in mid-February after a deep freeze in Texas sent the cost of fuel and power sky-high.

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UN Chief Backs Wealth Tax on Rich Who “Profited” From Pandemic

Brief: United Nations Secretary-General Antonio Guterres is calling on nations to institute a wealth tax to help reduce global inequality exacerbated by the Covid-19 pandemic. There has been a $5 trillion surge in the wealth of the world’s richest in the past year even as those at the bottom were made increasingly vulnerable, Guterres told a UN economic and social forum on Monday. “I urge governments to consider a solidarity or wealth tax on those who have profited during the pandemic, to reduce extreme inequalities,” he said. “We need a new social contract, based on solidarity and investments in education, decent and green jobs, social protection, and health systems. This is the foundation for sustainable and inclusive development.” With the Covid-19 fallout causing government debt to swell, and hurting poorer people most, wealth taxes are being debated from California to the U.K. as a tool both to pay down debt and address inequality. U.S. Senator Elizabeth Warren, Nobel laureate Joseph Stiglitz and economist Thomas Piketty are among proponents. In the U.S., Warren, along with Representatives Pramila Jayapal and Brendan Boyle, have proposed a 2% annual tax on households and trusts valued at between $50 million and $1 billion, though the measure is unlikely to garner the support needed to pass, particularly in the evenly divided Senate.

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OSC Study Finds Pandemic has Significant Impact on Retail Investors

Brief: The Ontario Securities Commission (OSC) today released a new study that explores the impact of the pandemic on the behaviours and attitudes of retail investors. This study is part of the OSC’s ongoing efforts to monitor the impact of the pandemic on investors and markets. The COVID-19 pandemic has uniquely affected the financial situation of each retail investor. Most investors are simply trying to endure the hardship and uncertainty of the pandemic, but some see it as an opportunity to increase their participation in the capital markets. “We continue to see the uneven impact that this crisis is having on retail investors,” said Tyler Fleming, Director of the Investor Office at the OSC. “Understanding how the pandemic is affecting different segments of the population is essential for supporting retail investors during this difficult time.”

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Hedge Fund Managers are Feeling Confident

Brief: Hedge fund managers are feeling optimistic about their economic prospects over the next 12 months. In a recent survey, 90 percent of hedge funds reported a positive outlook for their firms’ futures, according to the Hedge Fund Confidence Index, a global index produced by the Alternative Investment Management Association with law firms Simmons & Simmons and Seward & Kissel.  The HFCI was based on a poll over 300 hedge funds across the globe, accounting for approximately $1 trillion in assets, during the first quarter of 2021. Respondents were asked to rate their economic confidence levels on scale of -50 to +50, with +50 indicating the highest level of confidence. Based on responses, the average measure of confidence was +18 percent, a nearly 40 percent increase from the confidence levels reported last quarter “Hedge funds appear to be riding a wave of optimism sweeping the globe as it moves closer to exiting the pandemic,” the group said in the report. The report attributes much of this “cautious optimism” to the increased distribution of Covid-19 vaccinations and the slow lifting of pandemic-related economic restrictions. In the first three months of 2021, hedge funds have also seen a “solid set of results,” returning 6 percent net of fees for the year as of March 2021, according to the report.

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Singapore Firms Miss Women-on-Boards Target as Pandemic Blamed

Brief: Singapore’s largest companies missed a collective target to get more women on their boards, with diversity efforts taking a backseat to combating the coronavirus pandemic. The proportion of women on the boards of the 100 biggest listed companies rose 1.4 percentage points to 17.6% as of end-2020 from a year earlier, according to the Council for Board Diversity. The target was 20%. Some companies didn’t view board diversity as a priority last year as they battled the global outbreak, the council said. “Board diversity, a recognized hallmark of progressive boards even before Covid-19, is more critical now than before,” Loh Boon Chye, co-chair of the council, said in a statement. “Post-pandemic recovery offers opportunities for innovation and business repositioning. Having directors with a wider mix of gender, age, skills, experiences, and backgrounds allows boards the broad-based choices as they assess what is best for the future.” The percentage of top companies with 30% or more women on their boards rose to 16% in 2020 from 12% the year before, the report showed. There were still 18 all-male boards in 2020, and only seven of the top 100 firms were chaired by women.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday April 9, 2021:

  • In the United States, Bloomberg is reporting the country is sitting on a stockpile of more than 20 million AstraZeneca COVID-19 doses even as the inoculation looks increasingly less likely to factor into President Joe Biden’s domestic vaccination campaign. AstraZeneca has yet to request FDA approval for its vaccine and has already been questioned by American regulators for mistakes made during clinical trials and partial data releases. American health officials believe the FDA authorization of the AstraZeneca vaccine would be seen as “really important” due to all the questions surrounding it. However, most health officials are in agreement; the United States doesn’t need the stockpile of AstraZeneca doses and should start donating it to allies and poorer countries that could actually use it.
  • In Canada, Ontario reported 4,227 new cases of COVID-19 on Friday – the second most recorded in a single-day during the pandemic. The country’s most populous province recorded 4,249 new infections on January 8th, but 450 of those were attributed to a data delay. There are currently 552 patients being treated for COVID-19 related sickness in Ontario hospitals – the most since the pandemic began. Due to the record-breaking number, CBC reported Thursday evening that Ontario Health has ordered hospitals in much of the province to stop performing all but emergency and life-saving surgeries because of the growing case load of COVID-19 patients.
  • In the United Kingdom, economists are predicting a roaring start next week when the country’s battered hospitality and retail sectors reopen on April 12th. A chief economist at a London brokerage said extra spending from diners, drinkers and shoppers could be worth half a billion pounds in the first week alone. Over the course of the second quarter, the UK’s economy is expected to grow by around £6 billion as lockdowns are lifted under the government’s roadmap.
  • German Chancellor Angela Merkel plans on taking control back from state leaders and will look to impose restrictions on regions with high numbers of new infections. The news comes as the head of Germany’s disease control agency has called on the country to enter into a two-to-four-week lockdown to prevent hospitals from being overwhelmed. “Germany is in the middle of a third-wave, so the federal government and the states have agreed to add to the national legislation,” a spokesperson for Chancellor Merkel told reporters on Friday. The change to Germany’s COVID-19 pandemic law will likely be put before cabinet on Tuesday.
  • The Japanese government will reimpose restrictions in Tokyo, Kyoto and Okinawa as coronavirus cases rise in those three regions. Prime Minister Yoshihide Suga announced the decision on Friday and the measures will run from April 12th until May 11th in Tokyo and until May 5th in Kyoto and Okinawa. Similar restrictions are already in place in Osaka, Hyogo and Miyagi. Japan’s capital city Tokyo had only been out of their previous restrictions for three weeks. Under the new measures, bars and restaurants are being instructed to close by 8 PM and those that fail to do so, will face fines.
  • In Brazil, a congressional investigation of the federal government’s role in the country’s disastrous pandemic response has been given the green light. Not surprisingly, President Jair Bolsonaro was fuming at the move, blaming “leftist” senators and saying the investigation should instead focus on alleged misuse of federal funds to fight the pandemic by state governors and mayors. President Bolsonaro has been constantly at odds with governors and mayors throughout the pandemic who have imposed restrictions on commerce and public gatherings. Brazil set another record on Thursday with 4,429 Brazilians succumbing to the coronavirus.

Covid-19 – Due Diligence And Asset Management

Guardians of World Economy See Long Recovery Road

Brief : The guardians of the global economy this week implored governments to act to avoid a two-speed rebound where vaccinated, rich nations recover more strongly from the pandemic than poorer countries languishing under the burden of disease and debt. The International Monetary Fund said that it sees the U.S., as well as China, as the locomotive for global economic growth. The world’s largest economy, fueled by trillions of dollars in stimulus spending, is expected next year to surpass its pre-pandemic projected level of output. But many emerging and developing economies, struggling with slow growth and mountains of debt, will take much longer. The central theme of the IMF’s virtual spring meetings with the World Bank was “giving everyone a fair shot” -- a slogan that underlined both concerns about inequality and the importance of speeding up the distribution of vaccines globally.

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Hedge Funds Enjoy Biggest First-Quarter Gains in 20 Years, as Event Driven and Equity Strategies Fuel Returns

Brief: Hedge funds have made their strongest first-quarter start in more than 20 years, gaining more than 6 per cent in the three-month period to the end of March, with returns powered by a mix of successful calls on deep value equities amid accelerated volatility, renewed economic optimism, and soaring cryptocurrencies. Hedge Fund Research’s main Fund Weighed Composite Index, a global, equal-weighted benchmark of some 1400 single-manager hedge funds, advanced 6.08 per cent in Q1, following a 1.02 per cent gain in March. The March gain proved to be its sixth consecutive monthly rise, with Q1 its best opening quarter since 2000, and the index’s fifth-best opening quarter on record. HFR president Kenneth Heinz said deep value, event-driven equities, coupled with credit strategies – including traditional credit arbitrage exposures – and cryptocurrencies have helped fuel industry gains lately, as performance dispersion between winners and losers continues to narrow. Overall, event driven hedge fund managers led the pack, gaining 1.85 per cent in March to put their first quarter return at 8.21 per cent.

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Rebounding Private Flights Fuel M&A Interest in Corporate Jet Services Providers

Brief: As U.S. business aviation traffic rebounds to pre-pandemic levels, a niche, fragmented industry providing services ranging from hangars to fueling is drawing interest from private equity funds and infrastructure investors. Fixed base operators, or FBOs, play a key role in keeping private jets flying, offering services like hangars and fueling, and some buyers are betting the revival in flights could spill over into allied industries. While business jet orders and deliveries dropped in 2020, private flights, which carry smaller groups and promise wealthy passengers less risk of exposure to the coronavirus, have generally fared better than commercial. That is underpinning investor interest in FBOs. The sector recently made headlines when Gatwick Airport owner Global Infrastructure Partners joined forces with Blackstone and Bill Gates’ investment vehicle to make a $4.73 billion offer for Signature Aviation, the largest private jet services firm. There are other deals brewing too. Macquarie Infrastructure Corp has said it is seeking buyers for Atlantic Aviation, the second-largest FBO network, for a deal by year’s end.

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The World’s Wealthiest Countries are Getting Vaccinated 25 Times Faster

Brief: Enough vaccines have now been administered to fully vaccinate about 5 per cent of the global population — but the distribution has been lopsided. Most vaccines are going to the wealthiest countries.  As of Thursday, 40 per cent of the COVID-19 vaccines administered globally have gone to people in 27 wealthy nations that represent 11 per cent of the global population. Countries making up the least-wealthy 11 per cent have gotten just 1.6 per cent of COVID-19 vaccines administered so far, according to an analysis of data collected by the Bloomberg Vaccine Tracker. In other words, countries with the highest incomes are vaccinating 25 times faster than those with the lowest. Bloomberg’s database of COVID-19 vaccinations has tracked more than 726 million doses administered in 154 countries. As part of our effort to assess vaccine access around the world, the tracker has a new interactive tool measuring countries by wealth, population and access to vaccines. 

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Dealmakers Optimistic Private Credit Markets Will Fully Rebound, says new Survey

Brief: Initially sideswiped by Covid-19 in early 2020, private credit markets began to bounce back by year’s end, leaving dealmakers optimistic that private credit might fully rebound in 2021. According to a new survey of 112 private credit industry professionals conducted in February, 91 per cent of investors and 80 per cent of lenders surveyed expect deal flow to increase this year and are optimistic about several deal categories and sectors. For the 2021 Private Credit Survey Report, Katten surveyed an almost-equal weighting of lenders and private equity investors. Those surveyed represent a variety of sectors (including financial services, information technology, consumer staples, communications, industrials and health care) about their outlook on deal flow, readiness to address the London Inter-Bank Offered Rate (LIBOR) phaseout and other issues critical to the private credit industry.

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How Equity Analysts Filled the Covid-19 ‘Information Void’

Brief: The research output of equity analysts went up dramatically during the Covid-19 pandemic — but the accuracy of their forecasts went down, according to a new study from the University of London’s Cass Business School. Compared to the pre-pandemic months, analyst forecasts for company earnings per share, or EPS, increased by 72 percent in March 2020, indicating that sell-side analysts’ “initial response to pandemic-induced market uncertainty is to increase their provision of information,” according to the study’s author Pawel Bilinski, director of the Centre for Financial Analysis and Reporting Research at Cass. For other forecasts, such as revenue, cash flow, and dividend estimates, Bilinksi uncovered a similar pattern. The number of revenue forecasts increased by 80 percent in March, while cash flow forecasts jumped 59 percent and dividend estimates grew by 11 percent, according to the paper. The study was based on over 400,000 EPS forecasts and revenue, cash flow, and dividend estimates made by sell-side analysts from January 2018 to November 2020. The increase in research activity came as the Covid-19 pandemic sent a series of shock waves rippling through the global economy, creating an uncertain and volatile market environment.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 8, 2021:

  • In the United States, Treasury Secretary Janet Yellen urged major economies on Thursday to inject significant new fiscal support to secure a robust recovery. Yellen made the statement to the steering committees of the International Monetary Fund and the World Bank, and also made the point that major economies need to continue supporting developing countries as they struggle with the COVID-19 pandemic, climate change and high debt burdens. The United States are trying to lead the way in that regard, pledging $4 billion USD to the COVAX global vaccine distribution initiative and signalling America could provide excess doses of COVID-19 vaccines to other countries in the future.

  • In Canada, Quebec recorded more than 1,600 cases on Thursday – the most since January 23rd. The rise in cases has Premier Francois Legault and his government considering keeping strict restrictions in place in the hardest-hit cities of Quebec City, Levis and Gatineau. For instance, public health officials have linked 419 cases in recent days to an outbreak at a gym. Schools, restaurant dining rooms, gyms, hair salons and other non-essential businesses have been closed in the three cities mentioned since April 1st. Elsewhere in the country, 16 MLAs of the leading Alberta provincial government have signed a letter speaking out against their own party over its decision to adopt more stringent public health restrictions over a surge in COVID-19 cases. On Wednesday, Alberta recorded 1,351 new cases of COVID-19 – the most since December 31st, 2020.

  • The United Kingdom is set to reach herd immunity against COVID-19 within days, according to scientists. The University College London have used real-time modelling to suggest the UK should pass the critical threshold where the proportion of people who have protection against the virus either through vaccination, previous infection or natural immunity will hit 73.4% by Monday, April 12th. Professor Karl Friston of the University College London though has warned against the notion of speeding up the easing of lockdown restrictions in response to reaching herd immunity, noting: “if we let up, that threshold will go up again and we will find ourselves below the threshold, and it will explode again.”

  • France is set to meet its target of 10 million COVID-19 inoculations a week earlier than projected. French Prime Minister Jean Castex made the proclamation during a visit to a vaccination center near Paris. The government’s next goals are to have 20 million doses injected by mid-May and 30 million doses delivered by mid-June. France is in the middle of its third lockdown due to the coronavirus and French Prime Minister Emmanuel Macron noted last week he hopes the country will be able to reopen museums and restaurant terraces by mid-May.

  • Australia, the Philippines, and the African Union are the latest to deal blows to AstraZeneca as all three countries/regions made moves in recent days. Australia have recommended people under the age of 50 should get the Pfizer COVID-19 vaccine in preference to AstraZeneca – a policy shift that government officials have warned would hold up its inoculation campaign. The Philippines have suspended their use of AstraZeneca shots for those under the age of 60 after Europe’s regulator said on Wednesday it found rare cases of blood clots among some adult recipients. The African Union made the most drastic move of all – dropping plans to buy AstraZeneca’s vaccine from India’s Serum Institute and instead will explore options with Johnson & Johnson.

  • The Japanese government was busy doing damage control on Thursday, denying media reports that they were considering prioritizing COVID-19 vaccines for Olympic athletes ahead of the projected Games later this summer. The report was first made by the Kyodo news agency and met with outrage on social media with many noting the original government plans were to give vaccine priority to medical workers, elderly people, and those with chronic conditions. The chief cabinet secretary, Katsunobu Kato said the government has no plans on giving priority to Olympic athletes. Japan’s vaccination drive is far behind most major economies with only one vaccine approved for use and roughly one million people having received a first dose since February.

Covid-19 – Due Diligence And Asset Management

Powell Vows to Restore ‘Great’ Economy, Plays Down Inflation

Brief : Jerome Powell pledged to get the U.S. back to a “great economy” and invoked a homeless encampment in downtown Washington to make the point that the recovery remains incomplete. Playing down the risk that inflation could get out of control as the pandemic recedes, the Federal Reserve chair told a virtual panel Thursday that his commute home takes him past a “substantial tent city,” and that he thought of the millions of Americans who are still trying to get back to work. “So we just need to keep reminding ourselves that even though some parts of the economy are just doing great, there’s a very large group of people who are not,” he said during the International Monetary Fund panel. “I really want to finish the job and get back to a great economy.” Fed officials have repeatedly stressed that the U.S. economy continues to need aggressive monetary policy support as it recovers from the pandemic, even as the outlook brightens amid widening vaccinations

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UK Investors Flood to Equity Funds in March

Brief: UK investors added record levels of capital to equity funds in March as they bet on the post-Covid economic recovery, according to the latest data from funds transaction network Calastone. In total, UK investors committed a net £2.96 billion (€3.42 billion) to equity funds surpassing the previous record seen in the post-crash bounce of April 2020 by over a tenth, the firm said.  UK-focused equity funds saw a net £610 million added to holdings marking a "startling" turnaround for the asset class, while global equity funds took in £1.84 billion. Meanwhile, global ESG equity funds attracted new capital to the tune of £1.15 billion. Edward Glyn, head of global markets at Calastone highlighted that equity fund managers have enjoyed their best ISA (Individual Savings Accounts) season in years. “New capital has flooded in from investors keen to capitalise on the post-Covid economic recovery,” he said.  Active funds took in the lion’s share of investment, attracting over three quarters of overall net inflows (£2.32 billion). It was their best monthly performance since July 2015.

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Pandemic Impact may Weigh on Commercial Real Estate Recovery

Brief: The distribution of COVID-19 vaccines is fueling optimism that Americans will increasingly return to the ways they used to shop, travel and work before the pandemic. That would be a welcome change for companies that own office buildings and hotels, or those that lease space to restaurants, bars, department stores and other retailers. These have been the hardest-hit areas of commercial real estate over the past year as the pandemic forced many businesses to shut down temporarily or operate on a limited basis. But even as the U.S. economy appears set to roar back to life this year, as many economists now predict, demand trends for commercial real estate could take longer to recover as businesses reassess their post-pandemic needs. This means higher vacancy rates and declining rents this year, especially for retail and office property owners, said Thomas LaSalvia, senior economist with Moody’s Analytics.

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Jersey Finance Supports Research Exploring Post-Pandemic Fund Domiciliation Trends

Brief: The rise of sustainable finance, the impact of Brexit, EU regulation and the fallout of the pandemic all have the potential to shape considerations around alternative fund domicile selection, according to new research published this month by IFI Global and supported by Jersey Finance. Based on the views of alternative managers, law firms and advisors from across North America, Europe and Australasia, including some of the world’s largest investors in alternatives, the research for this new report – entitled ‘The Future of International Fund Domiciliation 2021’ – was carried out between October 2020 and February 2021. Building on the first IFI Global report in this series, published in April 2020, which found that investors and managers want stability when it comes to fund domiciliation, this new report explores how investor and manager attitudes have changed in light of some key developments in the investment space landscape over the past twelve months, including ESG acceleration, Brexit and regulation. Overall, the survey found that investors continue to be the key driver behind domiciliation decisions, and they want to allocate to funds that are domiciled in well-known jurisdictions that have a good reputation.

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RBC’s McKay Gives Staff a Day off with Workers More ‘Exhausted’ than Ever

Brief: Royal Bank of Canada is giving employees an extra paid day off this year, and its top executive acknowledged that staff are more burned out now than at any time during the COVID-19 pandemic. Chief Executive Officer Dave McKay said in companywide memo on Thursday that many employees have said they’re exhausted and that the bank needs to “eliminate the stigma associated with asking for time to focus, concentrate, and in some cases, log off and recharge.” Burnout has become a more pressing issue for financial firms as the pandemic moves into its second year and some lines of business, including mergers and acquisitions, see a sustained boom in activity. Last month, Goldman Sachs Group Inc. CEO David Solomon said the firm would improve enforcement of a rule designed to ensure junior bankers don’t have to work on Saturdays. His memo came after junior analysts gave managers a presentation showing that some worked 100 hours in a week. RBC, Canada’s largest lender, is also giving its roughly 86,000 employees worldwide a free, one-year subscription to Headspace, a meditation and sleep app. An annual subscription costs US$69.99, according to Headspace’s website.

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Fund Managers Urged to Diversify Their Talent Pool

Brief: Former Schroders COO Markus Ruetimann has called on fund managers to use the pandemic to assemble a more diversified workforce with greater emphasis on IT specialists and data scientists. Writing in the latest edition of the FundsTech quarterly report, Ruetimann stated that the move to remote working had shown the need for “new, more inclusive hierarchical structures and communication channels”. “Future talent pools will need diversifying. IT pioneers and data scientists are likely to play a bigger role than fund managers and data administrators going forward,” stated Ruetimann, chief executive of advisory practice Hardy London and also chair of Aprexo, a data management provider. However, while the institutional asset management industry has talked about the need to reinvent itself in view of the ever-expanding digital economy, few firms have replaced their legacy systems with new technology or hired talent from outside the industry to cater for a more tech and data-dominated operating environment. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday April 7, 2021:

  • In the United States, the National Institutes of Health has begun a mid-stage study to determine the risk of allergic reactions to COVID-19 vaccines made by Moderna and Pfizer. The study, which will be funded by the National Institute of Allergy and Infectious Diseases, will enroll 3,400 adults between the ages of 18 to 69, with about 60% of those participants having a previous history of severe allergic reactions to either food, insect stings or immunotherapy. The results of the study are expected to be released later in the summer.
  • In Canada, Ontario’s “emergency brake” installed last week has done little to stem the third wave of COVID-19 in the province, so instead, a stay-at-home order will be implemented as of 12:01 Thursday morning. Ontario’s ministry of health recorded 3,215 new cases on Wednesday – the most since January 17th and the seven-day average now at close to 3,000. The stay-at-home order is expected to last as long as four weeks and will close all non-essential stores, with big-box stores only permitted to sell grocery and pharmacy items for in-person shopping. The top public health officers from Ontario’s largest health units – Toronto, Peel and Ottawa urged Premier Doug Ford earlier in the week to impose the order, along with travel restrictions between regions and an emergency mandate for paid sick days. 
  • The United Kingdom’s drug regulator says people under 30 will be offered another product other than the AstraZeneca COVID-19 vaccine due to a rare blood clot risk. The Medicines and Healthcare Products Regulatory Agency said Wednesday the AstraZeneca vaccine continues to outweigh the risks for the vast majority of people. The UK’s decision was announced shortly after the European Union’s drug regulator said it had found a “possible link” between the AstraZeneca coronavirus vaccine and a rare clotting disorder, but the agency didn’t recommend any new restrictions for those taking the vaccine over the age of 18. The Moderna COVID-19 vaccine is expected to gain approval as the third vaccine for use in the UK in the coming days.
  • With Germany struggling to cope with the third wave of the coronavirus pandemic, Reuters is reporting Chancellor Angela Merkel is supportive of a demand for a short, tough lockdown. “Every call for a short, uniform lockdown is right,” deputy government spokeswoman Ulrike Demmer told a group of reporters on Wednesday. Chancellor Merkel has struggled to get all of Germany’s 16 state leaders on the same page with some states imposing night-time curfews over Easter, while others were experimenting with the easing of some restrictions.
  • China might be kept out of the next probe into COVID-19 origins as a group of scientists have called for more rigorous investigations – with or without Beijing’s involvement. An open letter signed by 24 scientists and researchers from Europe, the United States, Australia and Japan said the study conducted by the World Health Organization in January was tainted by politics. The letter states the study’s conclusions were based on unpublished Chinese research, while critical records and biological samples “remain inaccessible”. “Their (WHO) starting point was, let’s have as much compromise as is required to get some minimal cooperation from China,” said Jamie Metzl, one of the members who drafted the letter. 
  • Brazil set another unfortunate record on Tuesday with 4,195 deaths in one day due to the coronavirus. The numbers from Johns Hopkins University show just how dire the situation is in Latin America’s largest country. The month of March was the deadliest for the country since the pandemic began with at least 66,573 recorded deaths. Brazil has accounted for 28% of the world’s COVID-19 death toll since March 21st and only 2.42% of the total population in the country have been fully vaccinated. President Jair Bolsonaro has refused a national lockdown stating: “We will look for alternatives, we will not accept the ‘stay at home’ policy to close everything, to lockdown. The virus will not go away. The virus, like others is here to stay, and will stay for a lifetime. It is practically impossible to eradicate it.”

Covid-19 – Due Diligence And Asset Management

Fink says In-Person Client Meetings are Top Priority Post-Covid

Brief : BlackRock Inc. Chief Executive Officer Larry Fink said the thing he looks forward to most in the post-pandemic world is meeting with clients again, as the U.S. vaccination campaign continues and companies weigh how to unwind remote work setups. In his annual letter to shareholders, Fink said that there is no substitute for in-person meetings. His comments add to earlier remarks that he fears corporate culture can erode over time while working from home. “I miss the personal connections and unexpected ideas that come from meeting face-to-face and sharing a meal together,” Fink said Wednesday in the letter. “It’s often through a less structured conversation than one can have on a video call that we learn most about each other and experience intangibles, like culture, that are hard to see through a screen.” More than a year into the Covid-19 pandemic, global financial firms like BlackRock are deciding how to safely bring employees back to in-person work settings. BlackRock executives last year signaled the office will remain the primary work location for employees in the long term, and full-time remote work permission will be given only selectively.

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JPMorgan CEO Dimon sees U.S. Economic Boom Through 2023

Brief: JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said on Wednesday the United States could be in store for an economic boom through 2023 if more adults get vaccinated and federal spending continues. “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE (quantitative easing), a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” Dimon wrote in his annual letter to shareholders published on the bank’s website. “This boom could easily run into 2023 because all the spending could extend well into 2023.” As head of the biggest U.S. bank, Dimon is widely seen as the face of America’s banking sector, and he used the letter to share his views on the country’s economic health and to press for policies to help address inequality and improve the criminal justice system.

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IMF Proposes Temporary ‘Solidarity’ Tax on Pandemic Winners and the Wealthy

Brief: High earners and companies that prospered in the coronavirus crisis should pay additional tax to show solidarity with those who were hit hardest by the pandemic, according to International Monetary Fund. A temporary tax would help to reduce social inequalities that have been exacerbated by the economic and health crisis of the past year, the fund said in its twice-yearly fiscal monitor on Wednesday. It would also reassure those worst affected that the fight against COVID-19 is a collective endeavour within societies. Vitor Gaspar, IMF’s head of fiscal affairs, told the Financial Times that a symbolic rise in taxation from those who have prospered over the past year would strengthen social cohesion even if there was not a pressing need to repair the public finances. Countries should consider this policy as it would help boost their citizens’ perception “that everybody contributes to the effort necessary for recovery from COVID-19,” he said.

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Seward & Kissel Survey Finds Alternative Investment Allocators Likely to Increase Allocations to Less Liquid Strategies and Embrace New Managers

Brief: While the “fear gauge” that tracks market volatility has remained at elevated levels since the onset of the pandemic, those who allocate alternative investment dollars for large investors are showing no signs of skittishness, according to the Alternative Investment Allocator Survey conducted by leading law firm Seward & Kissel.The survey found that allocators are likely to increase allocations to less liquid strategies and continue to embrace emerging managers in 2021. The full survey is available here. The survey analyses the views of individuals from pension funds, endowments, family offices, seeders, high-net-worth individuals, and others. Asked how their organisations’ allocations across a wide range of alternative investments would change in 2021, on average 42 per cent of participants anticipated their organisations to increase allocations to at least one strategy and 54 per cent said they would maintain their allocations, while just 4 per cent said their allocations would decrease. The strategies for which participants expect to increase allocations to in 2021 were primarily less liquid strategies typically utilised by closed-end funds with private equity, private credit, and venture capital accounting for the top three of the four strategies of interest for increased allocations, followed by equity hedge.

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Biden White House in Talks with Airlines on Vaccine Passports; will Issue Guidance

Brief: The Biden administration is in extended discussions with U.S. airlines and other travel industry groups to provide technical guidance for vaccine passports that could be used to ramp up international air travel safely, industry officials said. The administration has repeatedly made clear it will not require any businesses or Americans to use a digital COVID-19 health credential, however. It will also publish guidelines for the public. The key question, airline and travel industry officials say, is whether the U.S. government will set standards or guidelines to assure foreign governments that data in U.S. traveler digital passports is accurate. There are thousands of different U.S. entities giving COVID-19 vaccines, including drugstores, hospitals and mass vaccination sites. Airline officials say privately that even if the United States does not mandate a COVID-19 digital record, other countries may require it or require all air passengers to be vaccinated.

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ESG Funds Beat out S&P 500 in 1st Year of COVID-19

Brief: In the first 12 months of the COVID-19 pandemic, many large investment funds with environmental, social and governance criteria outperformed the broader market. One fund went from being among the poorest performers to the top of the list following tweaks to its portfolio. S&P Global Market Intelligence analyzed 26 ESG exchange-traded funds and mutual funds with more than $250 million in assets under management. We found that from March 5, 2020 — the month that the World Health Organization officially declared COVID-19 a pandemic — to March 5, 2021, 19 of those funds performed better than the S&P 500. Those outperformers rose between 27.3% and 55% over that period. In comparison, the S&P 500 increased 27.1%.  Funds that identify as "ESG-focused" screen for stocks based on value and growth like many other funds, but add various criteria such as ESG-focused governance practices, sustainability scores, disclosure practices, fossil fuel exposure, adherence to religious principles and workplace diversity. Critics of ESG investing often question whether the strategy can deliver premium returns. But ESG fund managers have said their focus on nontraditional risks led to portfolios of companies that so far have been resilient during the COVID-19 downturn.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday April 6, 2021:

  • In the United States, President Joe Biden and his administration are advising states to widen the vaccine eligibility by April 19th. The deadline is two weeks earlier than the previously announced deadline of May 1st and will target anyone over the age of 16 to get their vaccine shot if they so choose. The announcement means Americans no longer need to check with state and local websites to see whether they qualify. The White House administration has said since President Biden took office, four in 10 Americans have already received their first COVID-19 inoculation, a rate far ahead of most countries.

  • Canadian Conservative Leader Erin O’Toole said his government, if elected, would call a public inquiry to examine the federal’s government’s response to the COVID-19 pandemic. O’Toole accused the Justin Trudeau Liberal government of ignoring scientists’ warnings about the transmissibility of COVID-19 in the early days of the pandemic, of allowing national stockpile of personal protective equipment to become depleted and of defunding a key pandemic early warning system. “A public inquiry will ensure that all lessons learned from the crisis are publicly aired and improvements can immediately be adopted. Canada must be better prepared for future threats. We cannot afford to once again fail to keep Canadians safe,” said O’Toole. It has been rumoured that the leading Liberals might trigger a snap election in the fall, especially if the vaccine rollout goes well throughout the summer.

  • United Kingdom scientists are sounding the alarm that the government’s current easing of lockdowns could trigger a wave of COVID-19 infections, similar to last spring. The Scientific Advisory Group for Emergencies (Sage) aren’t as concerned about the next stage in reopening – April 12th of shops, hairdressers and pub beer gardens - but the proposed changes in May and June when social mixing is set to be permitted again. A paper from the London School of Hygiene and Tropical Medicine said their projections of stage four, when restrictions are set to be abolished could, “lead to a larger surge of cases and deaths comparable to that seen during the first wave.”

  • India’s Maharashtra state, home to the country’s financial capital, Mumbai, has ordered offices to work from home and shut malls and restaurants through April. India recorded more than 100,000 daily COVID-19 cases for the first time on Monday. An unexplained lull in recent months gave the country a false sense of security, which allowed businesses to reopen and fostered optimism among government officials about a recovery in growth. As of Monday evening, private offices were asked to work from home, with some allowances for banks and stock exchanges.

  • The United Arab Emirates (UAE) and Israel have started direct commercial flights between the two countries. UAE Ambassador to Israel, Mohamed Al Khaja and Israel’s head of mission to the UAE Eitan Na’eh were on the Etihad Airways inaugural flight. “As our countries recover from the COVID-19 pandemic, we have much to look forward to in commercial, diplomatic, technological, health, and tourism exchanges,” Khaja was quoted as saying by UAE state news agency WAM. Dubai has become a popular destination for Israeli tourists, even during the pandemic. It also doesn’t hurt that both countries are among the world’s fastest in their COVID-19 vaccination campaigns.

  • Australia and New Zealand have agreed to a quarantine-free travel bubble. New Zealand Prime Minister Jacinda Ardern made the announcement during a Tuesday news conference with the travel bubble set to begin on Sunday, April 18th at 11.59 pm. “This is an important step forward in our Covid response and represents an arrangement I do not believe we have seen in any other part of the world,” said Prime Minister Ardern. Under the new rules, travelers won’t be allowed to travel if they had a positive COVID-19 test in the previous 14 days or present flu-like symptoms.

Covid-19 – Due Diligence And Asset Management

IMF: COVID-19 Pandemic Recession Could Have Been Three Times as Bad

Brief : The International Monetary Fund (IMF) estimates that without government support through the COVID-19 pandemic last year, the global economic downturn would have been three times as large. A retroactive look from the IMF estimated that fiscal measures from governments around the world contributed about 6% to global growth in 2020, helping to soften a global shock that still contracted output by 3.3% in 2020. The IMF now says the COVID-19 recession is likely to leave a smaller scar on the global economy compared to the 2008 financial crisis. "Overall, the global economy seems to be coming back somewhat stronger than we had expected," IMF Chief Economist Gita Gopinath told Yahoo Finance on Tuesday. Still, the fund is recommending that countries with the ability to spend continue to support policy measures like unemployment insurance and stimulus checks through the economic reopening.

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China’s Growth Set to Drive World Economy in Post-Pandemic Years

Brief: China will drive global economic growth in the coming years as the world recovers from an pandemic that’s killed 2.9 million people, the International Monetary Fund predicts. China will contribute more than one-fifth of the total increase in the world’s gross domestic product in the five years through 2026, according to Bloomberg calculations based on IMF forecasts published Tuesday. Global GDP is expected to rise by more than $28 trillion to $122 trillion over that period, after falling $2.8 trillion last year in the biggest peacetime shock to output since the Great Depression.  The U.S. and India will be the second and third-biggest contributors to global growth in the period, according to the IMF, with Japan and Germany rounding out the top five.  Overall, the IMF forecasts that the global economy will expand 6% this year, before slowing toward a 3% pace by 2026. It also warned that growth in the coming expansion may be unevenly spread, with developing economies expected to have bigger losses and slower recoveries.  “Income inequality is likely to increase significantly because of the pandemic,” the Fund said in its World Economic Outlook report. “Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections.”

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Amid the Pandemic, Hedge Funds Grapple with Investments in New Tech and Alternative Data

Brief: The Covid-19 pandemic shifted the professional world to the online office. Yet despite the demands of the virtual space, only around half of hedge fund managers are spending money on new technology. According to a recent survey from the Alternative Investment Management Association, Simmons & Simmons, and Seward & Kissel, 47 percent of hedge fund managers answered “no” when asked if they were investing in new technologies. Those who answered “yes” are focused on one major trend: alternative data. In the survey, hedge fund managers and investors were asked a series of questions about the health of, and trends in, the hedge fund industry. The survey, which gathered data during the fourth quarter of 2020, asked questions of over 300 industry professionals, a majority of whom were hedge fund managers accounting for an estimated $1.3 trillion in assets under management. “The industry is investing in technology — period,” said Tom Kehoe, managing director and global head of research and communications at AIMA, in an interview. “Across the board, hedge funds were using technology more in the past 12 months. If we look at the next 12 months, our sense is that the industry will double down on the use of technology.”

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Hundreds of Bankers Return to JPMorgan, Goldman London Offices

Brief: Hundreds more JPMorgan Chase & Co. and Goldman Sachs Group Inc. bankers have returned to their London offices since the U.K. government eased its “stay at home” guidance on March 29. About 15% of JPMorgan’s staff in the city -- about 1,800 people -- came into the office last week, up from about 10% since Christmas, according to a person familiar with the matter. Goldman is expecting attendance to increase in the coming weeks to about 20% of its roughly 6,000 workers in the U.K. capital, another person said, asking not to be named discussing private information. Spokespeople for the banks declined to comment. The U.K. is inching out of its third Covid lockdown and banks of all types are looking to establish future working practices. Some financial firms are starting to entice employees back to deserted offices and an empty City of London, while other have moved to embrace remote work. “Organizations need to understand what their employees need and what will enable them to do their best work,” said Allison English, deputy chief executive officer of workplace research firm Leesman. “The decision is certainly not a binary ‘home or office’ one.” The property market is watching the return to work. A 37-storey skyscraper in the heart of the City is being put up for sale for 1.8 billion pounds ($2.5 billion), according to the Telegraph. The price tag -- a record for a London office building -- will be a test of investor appetite for offices following the pandemic.

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Covid Success to see Cashing in ‘Surge’ Over Pension Freedoms

Brief: UK investment platform provider A J Bell is predicting a significant increase in withdrawals from pension pots compared to the unusual circumstances caused by the Covid pandemic over the last year. In five of the six years since the pension freedoms launched in April 2015, the first three months of the tax year has seen the highest volume of flexible withdrawals. The exception is the 2020/21 tax year, when withdrawals dipped to £2.3bn amid severe stock market uncertainty. Total withdrawals have been between 10% and 33% higher between April and July than the next largest quarter in every other tax year. Tom Selby, senior analyst at AJ Bell, said "While most of us still have fewer things to spend our money on at the moment - particularly given restrictions on foreign travel - the success of the Coronavirus vaccine and more stable market conditions mean we should expect to see a significant jump in withdrawals in the coming quarter." Selby emphasised how until 2020, the beginning of a new tax year has traditionally been peak pension withdrawal season, with UK savers taking advantage of a fresh set of tax allowances to access larger amounts from their retirement pots.

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How Covid-19 has Accelerated e-commerce Trends

Brief: We are witnessing a sizeable and lasting shift to e-commerce across the economy - a shift that has been underway for decades, entirely catalysed by a single, revolutionary technological advancement - the emergence of the internet. The internet made it possible for businesses and individuals to buy and sell items and services online, and in a very short period, consumers had the convenience of almost unlimited selection available to them from the comfort of their homes, 24/7, with just a few clicks of a button. As it stands today, global e-commerce is an area of tremendous opportunity, as the disruption we see is only just beginning. The effect of Covid-19 on corporate and consumer behaviour has been pronounced and significant. This period has been a tailwind for e-commerce at a level unseen since the advent of mobile phones. For the first time in history, we saw an acceleration in e-commerce adoption despite gross domestic product declining globally. The pandemic has created some of the greatest retail, payment, and distribution challenges in our lifetime. In a matter of months, the pandemic catapulted the industry forward, accelerating the adoption of online shopping, digital communications, website creation and other industry trends at a pace that had previously taken years. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday April 1, 2021:

  • In the United States, the Treasury Department is working with the International Monetary Fund (IMF) to provide up to $650 billion in financial aid to the countries hit hardest by COVID-19. An announcement from the Treasury on Thursday stated they were working with IMF on Special Drawing Rights, which are reserve assets that countries can use to suppliant their foreign exchange assets, such as gold and U.S. dollars. Global demand for American currency has been an ongoing issue throughout the pandemic and has resulted in the Federal Reserve also to engage in a dollar-swap program around the world. “Addressing the long-term global need for reserve assets would help support the global recovery from the COVID-19 crisis. A strong global recovery would also increase demand for U.S. exports of goods and services – creating U.S. jobs and supporting U.S. firms,” said the Treasury department in a statement.
  • In Canada, after more than a week of new COVID-19 cases going over the 2,000 mark, Ontario is introducing a province-wide emergency brake. The measure will come into effect as of April 3rd and will last at least four weeks. “I know pulling the emergency brake will be difficult on many people across this province, but we must try and prevent more people from getting infected and overwhelming our hospitals,” said Premier Doug Ford. The restrictions will not be as tight as the province-wide lockdown that was imposed in December. For instance, non-essential retail will be permitted to be open, but at 25% occupancy with essential retail outlets, like grocery stores, capped at 50%.
  • United Kingdom Prime Minister Boris Johnson gave a strong hint on Thursday that vaccine passports will be used once international travel resumes. During a trip to Middlesbrough on Thursday, reporters asked the prime minister if vaccine passports were un-British and this was his response: “On the issue of vaccine certification, there’s definitely going to be a world in which international travel will use vaccine passports. You can see already that other countries, the aviation industry, are interested in those and there’s a logic to that.” Prime Minister Johnson’s comments come after opposition leaders from the Labour Party and Liberal Democrats warned against the introduction of such certificates on the grounds they could be “divisive and discriminatory”.
  • In a televised address Wednesday evening, French President Emmanuel Macron announced a nationwide four-week lockdown set to begin on Saturday. In the address, President Macron implored the nation to make the extra effort as the lockdown comes into effect with restrictions being flexible this weekend during the Easter holidays to allow people to relocate within regions. The nationwide lockdown represents a policy shift for the French leader who favoured a localized approach when dealing with the pandemic. However, similar to the UK, that plan proved unproductive. The people of France also seem to be on board with a snap Harris International poll showing 71% approve of the decision to extend restrictions, which include the closing of schools and businesses.
  • The Italian government has made a potentially controversial move requiring all health workers in the country to take a coronavirus vaccine inoculation. According to media reports, Italy has an entrenched anti-vaccination movement, but a recent discovery of clusters in hospitals after staff refused to be vaccinated has led to a public outcry. In a decree approved by Prime Minister Mario Draghi’s cabinet, all health workers and pharmacists must undergo vaccination and those who refuse, could be suspended without pay for the rest of the year. More than 109,000 people have died in Italy due to the coronavirus.
  • Israel continues to be one of the country’s leading the way in their vaccination campaign. The latest numbers on Wednesday show the active coronavirus cases in the country have dipped to their lowest level since June 2020 and serious infections have hit a three-month low. Israel so far has vaccinated 4.7 million people or 51.2% of its population with two coronavirus shots. Those numbers are even better when it comes to Israel’s most vulnerable populations. Over 80% of all Israeli residents over 50 are fully inoculated and 90% for those over the age of 70. The country started to emerge from its third lockdown back in February with travel inside the country now mostly free of coronavirus restrictions, especially for the vaccinated.

Covid-19 – Due Diligence And Asset Management

Bridgewater to Offer Flexible Return to Work, Prince says

Brief : Bridgewater Associates LP plans to offer employees flexibility as they return to work for the first time since the Covid-19 pandemic began, according to Co-Chief Investment Officer Bob Prince. The firm expects to move toward a blended approach with some staff spending fewer days in the office and offering opportunities for employees to exercise more flexibility, Prince said Thursday in an interview on Bloomberg TV. The Westport, Connecticut-based hedge fund’s current plan is to have everyone in the office one day a week and smaller groups a second day, according to Deputy Chief Executive Officer Nir Bar Dea. The plan will start after Labor Day. The decision is a departure for the firm, which is known for an unorthodox culture that prizes employees working intensely together. Founder Ray Dalio runs the industry giant following a set of about 200 principles, the most central of which is “radical transparency” -- a demand that employees be brutally honest with one another. All meetings are taped and archived for future study and discussion. Prince said having staff work from home has been mixed. “Ironically, in some ways, we’ve been more productive in the last year than we ever were, in other ways less,” he said. “Obviously the culture of a community is very hard to build when you’re not actually seeing each other.”

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Brookfield to Take Property Arm Private in US$6.5B Deal

Brief: Brookfield Asset Management Inc. said it reached a US$6.5 billion agreement to acquire the shares of Brookfield Property Partners LP it doesn’t already own, boosting its offer to take private its real estate arm. The Canadian alternative-asset manager said Thursday it plans to acquire the minority stake for US$18.17 per unit. That would mark a 10 per cent increase to the US$16.50 a unit Brookfield Asset offered in January, and a 26 per cent premium over where the shares traded prior to that earlier proposal. Brookfield Property’s board has unanimously approved the deal, according to the statement by the companies. Brookfield Property dropped 0.8 per cent to US$17.66 as of 10:44 a.m. in New York. Brookfield Property Partners owns, operates and develops one of the largest portfolios of real estate in the world. At the end of December it had about US$88 billion in total assets, including developments such as London’s Canary Wharf and Brookfield Place in New York. In 2018, Brookfield Property acquired GGP Inc., the second-largest mall operator in the U.S., for about US$15 billion. The pandemic has taken a toll on the company as widespread stay-at-home orders kept workers from offices and shoppers from malls. Brookfield Property Partners reported a US$2 billion loss and its shares fell 21 per cent last year.

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Global M&A Sets First-Quarter Record as Dealmakers Shape Post-COVID World

Brief: Mergers and acquisitions (M&A) activity surged globally in the first quarter of 2021 to a year-to-date record, as companies and investment firms rushed to get ahead of changes in how people work, shop, trade and receive healthcare during the COVID-19 pandemic. While the number of deals was up only 6% from a year ago, the total value of pending and completed deals rose 93% to $1.3 trillion, the second-biggest quarter on record, according to data provider Refinitiv. Dealmakers said a boom in the stock market and low borrowing costs - driven by the Federal Reserve’s loose monetary policies - emboldened companies, private equity funds and blank-check acquisition firms to pursue their dream deals. This is despite the global economy’s failure to have fully recovered as yet from the virus’ financial fallout. “This is as robust and broad-based an M&A market as I have witnessed in the last 20 years,” said Colin Ryan, co-head of Americas M&A at Goldman Sachs Group Inc. “We are in an environment where assets are scarcer than the available capital right now.”

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“Cautiously Optimistic”: New Industry Finds Hedge Funds Buoyant in 2021 After Overcoming Covid Challenges

Brief: Hedge funds are “cautiously optimistic” on their growth prospects for the coming year, according to a new deep-dive industry study jointly published by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel. ‘The Global Hedge Fund Benchmark Survey: Beyond the Horizon’ probed manager performance, investor sentiment, future challenges, and alignment of interests, among other things. The wide-ranging study is part of an ongoing research series into the health of the hedge fund industry conducted by AIMA, the global trade body for the hedge fund and alternative asset management industry, together with law firms Simmons & Simmons and Seward & Kissel. Its key findings suggest 2021 will see a further acceleration of trends, with the industry becomingly increasingly digitalised and more social conscious, and hedge fund firms playing an integral role in the global economic recovery from the Covid-19 pandemic.

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Covid Kickstarts India’s Reforming Economy

Brief: India seems to have recovered quickly from Covid, and most citizens have been able to go back to their normal lives free from lockdown restrictions, says Jupiter's Avinash Vazirani. The country has reported just 12 deaths per 100,000 population, a much lower figure than, for example, the UK's 189 per 100,000. More than 30 million people in India have been vaccinated so far, with the government hoping to cover the most vulnerable 250 million by the end of July. India is especially well-placed for Covid vaccinations, as the country manufactures around 60% of the world's supply of vaccines. We think that India's world class healthcare and pharmaceutical industry will be a beneficiary of long-term trends for the treatment of and vaccination against Covid. Our outlook is also positive for India's economic growth in general. Economic activity has been trending above pre-Covid levels since January, with Goods & Services Tax (GST) takings up 8% in January, on a year-on-year basis, to a record high. According to the Federation of Indian Chambers of Commerce & Industry (FICCI) business confidence in March is at a decadal high, with companies not only seeing a recovery in demand, but also the potential for higher investment over the coming quarters.

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After a Year of Remote Work, Institutional Investors are Worried About Employee Burnout

Brief: Over a year into the pandemic, institutional investors are worried about the mental health of their employees. Managing stress and curbing burnout among employees who are working remotely were cited as top concerns in Nuveen’s inaugural global survey of institutional investors, which was released Wednesday.  Nuveen, the investment manager of TIAA, has $1.2 trillion in assets under management and operates in 27 countries, according to a press release on the survey results. The asset manager surveyed 700 global investors and consultants including decision-makers at corporate and public pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds, central banks, and consultants. The organizations represented in the survey held assets ranging from more than $10 billion to no less than $500 million, Nuveen said. When the Covid-19 pandemic changed the nature of work and shifted the investing world to the home office, institutional investors took the change in stride. 

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